Michael Gray, CPA's Tax and Business Insight

July 3, 2018

© 2018 by Michael C. Gray

ISSN 1539-395X

A monthly report to help you prepare for your financial future, keep more of what you earn by minimizing your taxes, and build an extraordinary business!

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Granddaughter Minnie jumps into a pool
Minerva Siemer, who is my granddaughter, has some summer fun!

Happy 4th of July!

I hope you are able to enjoy Independence Day with your family or friends! If you are traveling, travel safely!

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My schedule.

I (Michael Gray) will be away from my office after June 29, returning July 5. I will also be away from my office after July 10, returning on July 16.

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It's time for cleanup and extensions.

Maybe you have an issue for which you would like a second look on the income tax returns you just filed. Maybe you have extended income tax returns that you need to have prepared. Or maybe you have some planning issues for which need advice. To make an appointment, call Thi Nguyen, CPA at 408-286-7400, extension 206.

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Special offers for updates of two of my books.

We have been hard at work getting our books updated for the Tax Cuts and Jobs Act of 2017, enacted last December and mostly effective at the beginning of 2018. Two books are now ready for you to order, and we are making them available to our subscribers for half price through July 31, 2018. They are the 2018 editions of Executive Tax Planning for Employee Stock Options at https://bit.ly/2KqJHfE and How to Use Roth and IRA Accounts to Build A Secure Retirement at https://bit.ly/2lQKk3q. Each of the books are priced the same at $14.99 plus $5.00 shipping and $1.85 California sales tax for California residents. Follow the links to buy online using the coupon codes ESO2018 and ROTH2018, or call in your order to Dawn Siemer weekdays at 408-918-3162.

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Do you love travel?

I have created a Facebook travel group, called Travel Adventures, for members to share travel photos, experiences and tips. If you are on Facebook, you can use this URL to join: https://www.facebook.com/groups/207423476536726/, or search "Groups" on Facebook. You have to use the "join" button to join the group. This is a closed group, and I will approve your membership.

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Do you love Disney?

I have created a Facebook group, called Disney Magic, for members to share Disney photos, experiences and tips. I am also posting developments for Disney films, television shows, and amusement parks there. If you are on Facebook, you can use this URL to join: https://www.facebook.com/groups/2006739209578437/, or search "Groups" on Facebook. You have to use the "join" button to join the group. This is a closed group, and I will approve your membership.

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U.S. Supreme Court sales tax ruling is good news for "bricks and mortar" stores, bad news for online businesses.

For many years, companies that sold their goods in states where they had no physical presence (no assets or employees located in the state) haven't collected sales tax. They relied on U.S. Supreme Court rulings in National Bellas Hess (1967) and Quill Corp. (1992) that they weren't obligated to collect the tax.

With the explosion of the internet, a growing share of U.S. commerce is now conducted online. The states have suffered declining sales tax revenue and "bricks and mortar" merchants have suffered a disadvantage from having to collect sales tax while online merchants don't have to.

The Supreme Court, at the request of 41 states, two territories and the District of Columbia, reversed the National Bellas Hess and Quill decisions on June 21, 2018. The Court basically said that making a sale creates sufficient nexus to be required to collect sales tax.

This decision will have a significant impact on businesses that make interstate sales. They now need to determine the sales tax for a huge number of jurisdictions in the U.S. Counties and cities have their own sales tax rates. Businesses might be required to file hundreds of sales tax reports.

Some states have thresholds to eliminate the burden for smaller businesses. For example, in South Dakota, only sellers that deliver more than $100,000 of goods or services into the state or engage in 200 or more separate transactions for the delivery of goods or services into the state are required to collect sales tax. Hopefully Congress will develop legislation to ease the burden for collecting, reporting and paying state and local sales taxes.

(South Dakota v. Wayfair, Inc., et al, U.S. Supreme Court No. 17-494, June 21, 2018.)

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More health insurance options for industry groups.

The Department of Labor has issued new regulations expanding the definitions of employers and employees for qualified association group medical plans. The regulations eliminate the requirement that a group or association acting as an employer to exist for purposes other than providing health benefits and permit the group or association to exist for the purpose, in whole or in part, of sponsoring a group health plan that it offers to its employer members.

The new regulations are expected to provide more medical insurance choices for groups like realtors, court stenographers, and other professionals.

We should be seeing more organizations formed just to provide group medical plans for specific industries in the near future.

(29 CFR Part 2510, RIN 1210-AB85, June 21, 2018.)

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IRS issues draft "postcard" Form 1040.

The IRS has issued a draft Form 1040 for 2018. The form eliminates a lot of information historically shown and moves it to schedules attached to the form. The form may be fulfilling a "political promise," but won't really simplify the tax reporting process. I'm afraid it will confuse many taxpayers.

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Loan commitment fees were currently deductible.

The IRS has issued field advice that quarterly commitment fees paid to secure a revolving line of credit didn't have to be capitalized. The fees were deductible in the year incurred.

(FSA 20182502F, June 22, 2018.)

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Deduction for consulting fees disallowed.

The Ninth Circuit Court of Appeals upheld the Tax Court in disallowing a corporate deduction for $896,493 of consulting fees. The taxpayer didn't substantiate that the deduction was ordinary and necessary nor that the payment was reasonable in amount.

In this case, the corporation had no employees. The payments were made to a corporate officer, from whom the business had been purchased in 1998. There was no written contract for the arrangement, but there were corporate minutes. The invoices for the services said they were for "consulting, writing, and managerial fees," with no further detail. The invoices requested that checks be issued in amounts less than $10,000 and be made payable in "cash." The checks were negotiated by individuals other than the officer who provided services. No Form 1099 was issued for the payments.

The corporation never paid any dividends to its shareholders.

The officer who received the fees hadn't filed a Federal income tax return since 1991.

It appears that this was a tax evasion scheme, so the IRS and the courts "threw the book" at the taxpayer.

(Little Mountain Corporation v. Commissioner, 121 AFTR 2d 2018-870, June 19, 2018.)

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IRS wasn't prevented from assessing a penalty.

A federal district court ruled the IRS wasn't prevented from assessing a penalty for failure to disclose a listed transaction when it previously said it wouldn't assess an accuracy penalty.

The taxpayer's 2007 and 2008 income tax returns were audited, and they signed a Form 4549 on which no penalties were listed. The taxpayers were told that no accuracy penalty would be assessed if they signed the agreement.

The IRS later assessed a penalty for failure to disclose a listed transaction, and the taxpayers protested, claiming there was a breach of contract or equitable estoppel.

The court said there was no written agreement by the IRS that no additional penalties would be assessed.

(Hinkle v. U.S., 121 AFTR 2d 2018-2089, June 15, 2018)

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S Shareholder couldn't claim a corporate credit.

An S corporation shareholder claimed a FICA tax credit available for restaurants when the credit wasn't reported on the S corporation's income tax return or on the shareholder's Schedule K-1.

The Tax Court upheld the IRS's disallowance of the credit. The credit is a corporate-level election.

(Caselli v. Commisioner, T.C. Memo. 2018-81, June 12, 2018.)

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Taxes must be withheld for IRA funds transferred to unclaimed property fund.

The IRS ruled that an IRA trustee or custodian must withhold federal income taxes for IRA funds transferred to a state's unclaimed property fund. The transfer is a taxable distribution. (If the taxpayer catches the transfer in time, the funds can be rolled over to an IRA to eliminate the tax and recover the withholding.)

(Revenue Ruling 2018-17)

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Please share your good experiences with Michael Gray, CPA.

As you know, more and more people are going to the internet to find information about service providers. We hope you will share some good words about experiences that you have had with our firm<. Some of the sites where you can share your experiences include yelp.com and siliconvalley.citysearch.com.

We use Angie's List to assess whether we're doing a good job keeping valued customers like you happy. Please visitAngiesList.com/Review/4258970 in order to grade our quality of work and customer service.

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Financial Insider Weekly past episodes

After eight years of production, I have discontinued producing new interviews for Financial Insider Weekly. Doing the show has been a rewarding experience and I consider back episodes to be my legacy of financial literacy education to our community. Back episodes available at https://www.youtube.com/user/financialinsiderweek.

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Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.

For your questions about dependent exemptions, see IRS Publication 501 at www.irs.gov.

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Visit our new article!

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Follow me on Social Media!

Want to see new episodes of Financial Insider Weekly as soon as they're posted on Youtube? Want to see Michael Gray's blog posts as soon as they're live? We post them (and more) on social media!

If you enjoy Twitter, please follow me at www.twitter.com/michaelgraycpa. I would especially appreciate retweets of our messages announcing episodes of Financial Insider Weekly.

I'm also on Facebook, LinkedIn, and Google+.

you can also follow me on other social media sites, Facebook, LinkedIn, and Google+.

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If you have employee stock options, have you subscribed to Michael Gray, CPA's Option Alert at no charge or obligation?

To learn more, visit stockoptionadvisors.com/subscribe.shtml

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Real estate investors, have you subscribed to Michael Gray, CPA’s Real Estate Tax Letter at no charge or obligation?

For details, visit www.realestatetaxletter.com

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Check out my blog.

I have also started a blog at www.michaelgraycpa.com. Check it out!

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My daughter and her husband, Holly and Dan Baker, have a Southern French Restaurant at 23 Ross Common, Ross, California, about 15 minutes north of the Golden Gate Bridge. The name of the restaurant is Marché Aux Fleurs and their website address is marcheauxfleursrestaurant.com. For the best meal of your life, call 415-925-9200 for a reservation and give them a try! For directions, visit our website at www.taxtrimmers.com/directions.shtml.

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Michael Gray, CPA
2482 Wooding Ct.
San Jose, CA 95128
(408) 918-3162
FAX: (408) 938-0610
Hours: 8am - 5pm PDT Monday - Friday

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